US Bank 2006 Annual Report Download - page 24

market products in relation to other fixed-rate deposit money market savings account balances declined from 2004
products offered. During 2006, a portion of branch-based to 2005 by $3.5 billion (10.8 percent), with declines in both
money market savings account balances migrated to fixed- the branches and other business lines. The decline was
rate time certificates to take advantage of higher interest primarily the result of deposit pricing by the Company for
rates for these products. money market products in relation to other fixed-rate
Average time certificates of deposit less than $100,000 deposit products offered. A portion of the money market
were $562 million (4.3 percent) higher in 2006, compared savings balances migrated to time deposits greater than
with 2005. Average time deposits greater than $100,000 $100,000 as rates increased on the time deposit products.
grew $1.6 billion (7.7 percent) in 2006, compared with Average time deposits greater than $100,000 grew
2005. This growth was primarily driven by the migration of $7.0 billion (51.0 percent) in 2005, compared with 2004,
money market balances within the Consumer Banking and most notably in corporate banking, as customers migrated
Wealth Management business lines, as customers migrated balances to higher rate deposits.
balances to higher rate deposits. Provision for Credit Losses The provision for credit losses is
The decline in net interest income in 2005, compared recorded to bring the allowance for credit losses to a level
with 2004, reflected growth in average earning assets, more deemed appropriate by management based on factors
than offset by a lower net interest margin. The $10.3 billion discussed in the ‘‘Analysis and Determination of Allowance
(6.1 percent) increase in average earning assets for 2005, for Credit Losses’’ section.
compared with 2004, was primarily driven by increases in The provision for credit losses was $544 million in
residential mortgages, commercial loans and retail loans. The 2006, compared with $666 million and $669 million in
28 basis point decline in 2005 net interest margin, compared 2005 and 2004, respectively.
with 2004, reflected the competitive lending environment and The $122 million (18.3 percent) decrease in the
the impact of changes in the yield curve. The net interest provision for credit losses in 2006 reflected stable credit
margin was also adversely impacted by share repurchases, quality in 2006 and the adverse impact in the fourth
funding incremental growth of earning assets with higher cost quarter of 2005 on net charge-offs from changes in
wholesale funding, and asset/liability decisions designed to bankruptcy law in 2005. Nonperforming loans, principally
reduce the Company’s rate sensitivity position including reflecting changes in the quality of commercial loans,
issuing longer-term fixed-rate debt and reducing the declined $74 million from December 31, 2005. However,
Company’s net receive-fixed interest rate swap positions. accruing loans ninety days past due and restructured loans
Slightly higher loan fees and the increasing margin benefit of that continue to accrue interest increased by $186 million
deposits and net free funds partially offset these factors. from a year ago. Net charge-offs declined $141 million
Average loans in 2005 were higher by $11.0 billion from 2005, principally due to the impact of changes in
(9.1 percent), compared with 2004, primarily driven by bankruptcy laws that went into effect during the fourth
growth in residential mortgages, commercial loans and quarter of 2005. In 2005, approximately $64 million of
retail loans. Average investment securities were $906 million incremental net charge-offs occurred due to the change in
(2.1 percent) lower in 2005, compared with 2004, bankruptcy laws and a separate policy change related to
principally reflecting maturities and prepayments utilized to overdraft balances. As a result of these changes, bankruptcy
fund earning asset growth and the net impact of charge-offs were lower in 2006 while customers
repositioning the investment portfolio as part of experiencing credit deterioration migrated further through
asset/liability risk management decisions. Average contractual delinquencies and bankruptcy levels increased
noninterest-bearing deposits in 2005 were $587 million from past bankruptcy reform.
(2.0 percent) lower than in 2004. The year-over-year change The $3 million (.4 percent) decline in the provision for
in the average balances of noninterest-bearing deposits was credit losses in 2005 reflected improving levels of
impacted by product changes in the Consumer Banking nonperforming loans, resulting in lower net charge-offs in
business line. In late 2004, the Company migrated 2005. Nonperforming loans, principally reflecting changes
approximately $1.3 billion of noninterest-bearing deposit in the quality of commercial and commercial real estate
balances to interest checking accounts as an enhancement to loans, declined $96 million from December 31, 2004. Net
its Silver Elite Checking product. Average total savings charge-offs declined $82 million from 2004, the result of
products declined $1.7 billion (2.9 percent) year-over-year, lower gross charge-offs within the commercial and
compared with 2004, due to reductions in average money commercial real estate portfolios. The improvement in
market savings account balances and savings accounts, commercial and commercial real estate gross charge-offs
partially offset by higher interest checking balances due to was partially offset by the impact of bankruptcy legislation
strong new account growth, as well as the $1.3 billion enacted in the fourth quarter of 2005 and lower commercial
migration of the Silver Elite Checking product. Average
22 U.S. BANCORP